The London Stock Exchange. Hard to get

Still single, and happy that way

DESPITE the stifling summer heat in the centuries-old meeting hall, officials from the London Stock Exchange (LSE) were decidedly cool in assessing merger prospects at their company's annual general meeting on July 13th. Continental suitors made their interest known months ago, but as far as the LSE's bosses are concerned, they can go on waiting. A strong set of financial results has done the LSE's self-confidence no harm at all.

Chris Gibson-Smith, the exchange's chairman, spoke of “a strong independent strategy” and declared that the LSE “is not up for sale.” Whether it can stay single, however, following last December's unsolicited bids by Frankfurt's Deutsche Borse and Euronext, based in Paris, remains to be seen. Britain's Competition Commission is due to report by the end of the month on its review of the two offers.

Technically, both are still alive, despite a revolt by Deutsche Borse shareholders against their company's bid that ousted its feisty boss, Werner Seifert. The Germans' initial bid of £5.30 (then $10.18) a share last December was rejected as too low. Euronext, meanwhile, is likely to have restrictions placed on it by the British authorities, should it proceed with a formal offer.

Many wonder if the LSE will hold out for a price too dear for Euronext's shareholders. “We're interested in the right transaction at the right price, nothing less,” said Clara Furse, the LSE's chief executive, to The Economist after this week's meeting. Dismissing suggestions that the LSE was talking up its own share price (it closed at a shade over £5.00 on July 13th), Ms Furse pointed to recent results: turnover increased by 13% in the quarter to June 30th, and lucrative new flotations (including many from foreign companies) hit their highest level in four years last month. The numbers emboldened Mr Gibson-Smith to remind shareholders that the LSE is Europe's largest stock exchange by value traded - “more than twice that of Euronext, our nearest European rival.” However, Euronext, like Deutsche Borse, has a considerably larger market capitalisation.

The Euronext camp, which sounded rather combative when the Germans first made a move, is now more cautious. “All the previous deals Euronext has done have been on the basis of people coming together,” says an adviser to the Paris-based exchange. “We're not going to force a deal.” Substantive talks with the LSE will not resume until after the competition authorities make their report, but Euronext is still touting the benefits it could offer the London exchange. These, it says, include access to the continental European cash equities market, a window on the fixed-income market, and the chance to “bring Liffe [a derivatives exchange owned by Euronext] back to London.”

Meanwhile, there are tantalising rumours of a suitor from across the Atlantic. The LSE declined to comment on talks with prospective American partners, but when asked to explain the argument in favour of such a tie-up, Ms Furse was quick to note the appeal of “a global exchange”. John Thain, head of the New York Stock Exchange is preoccupied with a domestic merger. The Chicago Mercantile Exchange is another successful big American exchange whose name has cropped up - even though it is a pure derivatives exchange, with no cash equities business. It has global ambitions and the funds to match. So whether the LSE's fate will be settled in Europe or across the Atlantic is not yet clear. What is clear is that the Europeans would be wise to keep their eye on the bigger global game.

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